Body Corporate 212050 v Hawkins Construction Limited

[2012] NZHC 3433

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-004515 [2012] NZHC 3433

BETWEEN  BODY CORPORATE 212050

First Plaintiff

ANDTZU-YING LEE & OTHERS Second Plaintiffs

ANDHAWKINS CONSTRUCTION LIMITED First Defendant

ANDJAMES HARDIE NEW ZEALAND LIMITED

Second Defendant

ANDSCOTT ALLEN Third Defendant

ANDMATTHEW VESEY First Third Party

ANDLYNDON LEE MCDOUGALL Second Third Party

Hearing:         10 December 2012

Counsel:         PR Grimshaw and SE Mitchell for Plaintiffs HA Brown and P Patterson for First Defendant KW Kemp and OR Stewart for Second Defendant

Judgment:      14 December 2012

JUDGMENT OF ASHER J

This judgment was delivered by me on Friday, 14 December 2012 at 4.45pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Grimshaw & Co, DX CX 10174, Auckland 1140.
Email: [email protected] and [email protected]

Kensington Swan, DX SP 26517, Auckland 1140. Email: [email protected]

Chapman Tripp, PO Box 2206, Auckland 1140.

Email: [email protected] and [email protected]

BODY CORPORATE 212050 V HAWKINS CONSTRUCTION LIMITED HC AK CIV-2011-404-004515 [14

December 2012]

Introduction

[1]      The plaintiffs are a Body Corporate and the individual owners in a 32 unit block  of  residential  apartments.     They  have  issued  proceedings  against  the defendants because their apartment building leaks and requires extensive repairs. The first and second defendants, who are the construction company and cladding system supplier respectively, seek an order that the issue of whether the plaintiffs’ claim is time-barred be determined as a preliminary question.

[2]      It is alleged in the statement of claim that there are extensive defects in the apartment building which have caused moisture ingress.  The Limitation Act 1950 point arises out of events that took place in 2003.   On 16 April 2003 the Body Corporate engaged Prendos Ltd, a company specialising in weathertightness issues, to prepare a report.  That report identified some weathertightness issues and defects in the building and, it is claimed, recommended further testing.   The defendants assert that the conclusions led to various Body Corporate meetings attended by the owners.    The  Body  Corporate  also  received  legal  advice,  and  weathertightness surveys were completed by individual owners.   But, say the defendants, no proceedings were issued until 2011.

[3]      Against that background the first and second defendants seek an order that the Limitation Act issues arising from the 2003 events are determined before any other issues in the proceeding, in what I will call the “proposed limitation hearing”.

Relevant principles

[4]      The relevant High Court Rule is r 10.15 which provides:

10.15 Orders for decision

The court may, whether or not the decision will dispose of the proceeding, make orders for—

(a)   the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and

(b)   the formulation of the question for decision and, if thought necessary, the statement of a case.

[5]      The presumption in relation to any such application that a proceeding is best determined by a single trial, rather than split trials.  An applicant for a split must persuade a Court that this presumption should not apply.  The problems of split trials were expressed by Fisher J in a widely quoted[1] statement in Clear Communications Ltd v Telecom Corp of New Zealand Ltd[2] where he observed:

Split trials risk a number of difficulties.  It is often difficult to define with sufficient precision the demarcation between those issues to be addressed at the first trial and those left for the second (see, for example, the Arklow litigation).  It is not always easy to see what matters have become the subject of issues estoppel.  It may be necessary to prepare issue estoppel schedules and hear argument as to their scope.  A Judge may inadvertently disqualify himself or herself by expressing views on matters yet to be fully addressed at the second hearing (Winton).  Findings might be inadvertently made without the benefit of evidence and argument envisaged by a party as appropriate only for the second hearing.  The second hearing can require the recalling of the same witnesses with needless extra time and cost to the parties and the public.  There is duplication of time spent by counsel and the Court in re- acquainting themselves with issues imperfectly remembered from an earlier trial and the time spent retraversing those matters in Court.   There can be multiple appeals (in extreme cases taking the matter to the Privy Council as in Ryde v Sorenson) before returning to the Court of first instance to embark upon the second phase of the case.  Even without appeals, there can be delay in embarking upon a second round of discovery and other interlocutory matters and amended pleadings following the first trial and then the delay of obtaining a fixture for the second hearing.   There can be difficulties in ensuring that the same Judge is available for the second hearing, bearing in mind the usual commitments, sabbaticals, retirements and deaths which are the unhappy lot of the judiciary.  If a different Judge has to preside at the second hearing there can be difficulties over earlier views as to credibility and the status of the notes of evidence from the first hearing.  In my view these and other difficulties together place a heavy onus on any party seeking split trials.

[1] See for example Haden v Attorney-General HC Wellington CIV-2010-485-2380, 4 November

[2] Clear Communications Ltd v Telecom Corp of New Zealand Ltd [1998] 12 PRNZ 333 (HC)

at 335.

[6]      These important questions to be considered have been discussed in a number of recent cases.[3]   Split trials can on occasions provide a practical way of dealing with a trial issue.  If it is a condition that there are no appeals and where there is minimal overlap in issues and evidence and, particularly in the case of a long trial, there can

be  a  practical  advantage  in  a  split  between  distinct  issues.    This  occurred  in

Commerce Commission v Air New Zealand Ltd[4]  where, in a trial that was going to take many months, a distinct issue with little overlap was heard first, and this was followed by the settlement of many of the claims without the need for a second hearing.    If  a  preliminary  issue  of  importance  is  determined  it  can  promote settlement.

[3] Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [11], and Haden v Attorney-General, above n 1, at [50].

[4] Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103,318 (HC).

[7]      Against this is the reality that split trials can mean that for reasons beyond the Court’s control, different Judges end up determining different aspects of the case, a situation that can be unsatisfactory if there are overlapping credibility or legal issues. There is also always the danger of appeals, even when there are “no appeal” conditions attached to the order.  Generally if the first decision is determinative, the losing party on the split hearing will want the chance to appeal, and if that losing party is later successful on appeal, the proceeding may have to move many years later back to the postponed second stage, meaning that much time will be lost.

[8]      When considering split trial applications different Judges will segment the relevant factors in various ways, which turn often on the circumstances of the particular case.[5]   Generally three broad issues arise.  First, whether the issues in the segments of the split trial will be discrete, with little or no overlap in issues and evidence.  Secondly, the potential time to be saved or lost if there are split hearings. This will inevitably involve the consideration of the duration of each of the split

hearings and appeal issues.   Thirdly, some cases have particular practical considerations that arise, for instance, when the case is going to be very long and has a great deal of complexity, or if it is a type of case, in particular an intellectual property case, where split trials have been more common.[6]    In the end the Judge must stand back and marshall the various considerations and ask where the overall

justice lies.

The potential overlap of the issues

[5] Turners and Growers Ltd v Zespri Group Ltd, above n 3, at [11]; and Haden v Attorney-General, above n 1, at [50].

[6] Yves St Laurent Parfums v Louden Cosmetics Ltd (No 2) (1994) 8 PRNZ 238 (HC) at 240; Young v St Lukes Square (1993) Ltd HC Auckland CIV-2003-404-3215, 17 November 2005 at [6(c)]; KPMG New Zealand v Gemmell, above n 1, at [22].

[9]      Ms Brown for the first defendant and Ms Kemp for the second defendant argue that if they are successful at least 12, and possibly 14, of the owners (being those  parties  who  were  owners  in  2005)  will  be  struck  out  of  the  proceedings because they will be outside the statute of limitations period.  This will leave 18 or

20 residents still in.  So approximately 43 per cent may be time barred.  They assess that time will be saved as it is intended to call all unit owners at the substantive hearing and that each owner will take half a day.  That is at least six full days of hearing time.  In addition, if those pre-2005 residents are removed, the list of defects might also reduce.   In particular, they argued that the roof leak claim would go. They submitted that the presence of the 14 owners who might be time barred was a barrier to settlement and that a split hearing could mean that settlement would follow the first hearing.

[10]     Issues such as the duty of care, the liability of the defendants for breach, causation,  cross-claims  and  quantum  can  all  be  excluded  from  the  proposed limitation hearing.   That hearing will turn on when the cause of action accrued, which  will  turn  on  when  all  facts  necessary  to  establish  the  claims  were  in existence.[7]   They submit that it will be a matter of fact and degree in the particular case whether the outward manifestation of the defect could have led a reasonable home  owner  or  expert  appointed  by  them  to  discovering  the  underlying  latent defect.[8]     I heard submissions from both sides as to whether the Prendos report obtained in 2003 did in fact refer to detail which should have led to a reasonable home owner to discover the underlying latent defects.

[7] Williams v Attorney-General [1990] 1 NZLR 646 (CA) at 678, and Invercargill City Council v

Hamlin [1996] 1 NZLR 513 (PC).

[8] Cole v Pinnock HC Auckland CIV-2011-404-3743, 16 December 2011.

[11]     It  is  my assessment  that  there will  be considerable overlap,  or to  put  it another way, poor demarcation, between the proposed split trials.   The proposed limitation hearing will involve 12 or 14 owners giving evidence of their knowledge of the defects and damage.  The plaintiffs and defendants will call expert evidence as

to the defects and their manifestation.  Some of this evidence will be evidence that

will also be called at the substantive trial where the issues of the extent of the duty of care and breach of the duty of care will be traversed.  I record that I do not accept the submission of Mr Grimshaw for the plaintiff that it would be necessary to call valuation evidence at the Limitation Act hearing, as I am not satisfied that a loss in value would be a relevant issue in the proposed limitation hearing.

[12]     The fact that up to 12 or 14 owners and at least two experts will have to give evidence at the proposed limitation hearing, which will relate to the manifestation of defects which will also be relevant to issues of substantive liability, is a reason not to grant the application.  Evidence that has to be called twice inevitably ends up taking more time and costing the parties more money.  It is inefficient.

Savings or losses in time

Trial time

[13]     Ms Brown and Ms Kemp for the defendants accepted that at best the savings would be six to seven days if the 12 to 14 owners who, if the Limitation Act defence succeeded, were then not required for the substantive trial.   In addition, they submitted that up to three or four days could be saved, in that the claim by the Body Corporate will be at the very least reduced and there will not need to be evidence on roof defects.   The  roof  defects  cause of action  could  be  dispensed  with  at  the proposed limitation hearing.  They estimated that the overall saving would be two weeks should the limitation defences succeed at the proposed limitation hearing.

[14]     Another possibility that they accepted was that there might be partial success where some of the claims against the pre-2005 owners might be time barred and some not.  In that circumstance there might be up to a week saved.

[15]     They also submitted that even if they lost the proposed limitation hearing, they would save at least three or four days from the main trial in terms of evidence already heard and submissions saved.  The limitations point would not need to be re- argued.

[16]     These submissions have to be seen against a total estimate of time for the trial of six weeks.  I accept that there would be some time saved should the defendants be totally successful in raising their Limitation Act claims and there were no appeals. The trial would proceed against the remaining defendants.  But that saving could be no more than one-third of the total time of hearing and might well be a smaller percentage.

[17]     If,  however,  the  limitation  defence  issue  was  determined  against  the defendants, the effect of ordering split trials would have been to have increased the time the parties spent in court.  I have already noted that there will be an overlap of evidence. This duplication would be costly in terms of time.

[18]     I am less optimistic than the defendants in estimating the time saved should the limitation defences be dismissed.  There will be some time saved in terms of not having to repeat limitation submissions, but I suspect that the defendants will give all their evidence about the manifestation of defects again.   I bear in mind that there may be a different Judge determining the substantive hearing.  In my estimate should the defendants fail in their Limitation Act defences, at least a week of hearing time will have been wasted in the proposed limitation hearing, as well as a great deal of preparation costs.

Appeal time

[19]     The time lost could be far worse than that if appeals are taken into account. The defendants have indicated that they accept that there could be a condition that, should they be unsuccessful in their Limitation Act defence hearing, they will not appeal prior to the determination of the substantive second hearing.

[20]     The plaintiffs, quite understandably, will not accept that any such condition should  apply to  them.    Obviously they might  well  wish  to  appeal  any adverse decision which has the effect of terminating any of their claims.   Even if the defendants were only partly successful in their limitation defences, the plaintiffs might still wish to appeal.  If there was any appeal it is likely that the substantive proceedings would have to be adjourned.  It would be unsatisfactory for the hearing

to take place against some parties, when others might later be joined if the appeals were successful.  So it could be expected that a period of at least a year while appeals were in progress and determined could pass.

[21]     Then  there  is  the  prospect  of  yet  another  appeal  to  the  Supreme  Court. Assuming the plaintiffs were ultimately successful, as they were for example in North Shore City Council v Body Corporate 188529[9]  then after two or three years the parties would have to go back to the High Court and seek a fixture.  When that prospect is considered, on a worst case scenario, four years or more could be lost while  the  appeal  processes  and  ultimately  a  trial  were  pursued.    The  scenario

postulates that the plaintiff is unsuccessful in the first rounds and successful at a later round, but this is not a prospect that can be discounted.  The expensive muddle that can arise when these sorts of appeal scenarios unfold has been demonstrated on a number of occasions.[10]

Overview

[9] North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289.

[10] Strathmore Group Ltd v Fraser [1992] 3 NZLR 385 (PC) and Treaty Tribes Coalition v Urban Maori Authorities [1997] 1 NZLR 513 (PC) summarised in Haden v Attorney-General, above n 1, at [49].

[22]     Thus there is no split trial scenario that is likely to involve any significant saving of time.  If the defendants succeed in the proposed limitation hearing the case must still proceed so that the remaining plaintiffs who are not subject to the statute of limitation defence can have their day in court.  But it is likely to be delayed while the unsuccessful plaintiffs appeal.   Their hearing will possibly be delayed for years. This will be a great injustice for those post-2005 plaintiffs.   They will effectively have their claims parked while the pre-2005 owners and the defendants fight it out. If the plaintiffs win the limitation point there will have been the wasted time of the split hearing and some evidence that will have to be repeated in the second hearing.

[23]     This delay must be measured against the greatest advantage in having a split hearing, which is to get rid of an issue against some parties and thereby perhaps improve the chances of settlement against those parties and saving a few net days of

hearing time.

[24]     In my view when the advantages and disadvantages of the proposed split hearing are ranged against each other, the balance falls overwhelmingly against a split.  A key reason for this is that the determination of the Limitation Act hearing will only determine the case against some of the plaintiffs.   The case against the other plaintiffs must proceed in any event.   This means that the potential gain in terms of bringing the proceeding to a quick and clean  end,  which is  often put forward as the central reason for an application, does not apply.   Moreover, even against the defendants in question, there is an overlap in the evidence that will be called at the first hearing and, the second hearing.  There is also, as I have outlined, a real danger that the parties could become lost in a quagmire of appeals and further delays while awaiting the outcome of those appeals. There are no particular practical considerations that arise such as extreme complexity requiring a break, or entirely demarked splits, that sometimes arise.

[25]     I conclude that marshalling the various factors, the overall justice falls clearly against splitting the trial.

Result

[26]     The application is declined.

[27]     Costs should follow the event.  The first and second defendants are to pay the plaintiffs’ costs on a 2B basis.

……………………………..

Asher J

2011 at [47]; Bay of Plenty Energy Ltd v The Electricity Authority HC Wellington CIV-2010-
485-2328, 4 July 2011 at [8]; O'Connell v Dwerryhouse HC Auckland CIV-2010-404-1329,

24 June 2011 at [19]; KPMG New Zealand v Gemmell HC Auckland CIV-2008-404-4288,

27 March 2009 at [21].